Outsourcing can be described as an arrangement whereby a company provides services for another company that could have traditionally been performed in-house. This trend has been very common across industries and it is mainly attributed to the increasing business competition. Some of the services that organizations tend to outsource include planning & business analysis as well as the installation, configuration, software development, management and servicing of their information systems infrastructure.
Organizations choose to outsource some of their services with some of the reasons cited being, anticipated cost savings, enhanced skills and management, handling of overflow situations and the need for the organization to focus on its core strategy and functions (Steven Bragg, 2006, p. 1).
Whenever outsourcing is performed, its repercussions can be both positive and negative, and it is upon organizations to learn on the best ways to effectively manage their relationship with their service provider while at the same time identifying situations where outsourcing is appropriate in order to realize a competitive advantage, this is so because the organization in the long run shall held responsible for their own products and not the vendor who supplied to them the outsourced labor (Bill Ellmore, 2007).
Outsourcing of these key IT services makes strategic sense to an organization depending on the IT component that is being outsourced, there has to be concrete reasons together with some specific objectives. Some additional benefits that an organization may realize when it outsources some of its non-core functions includes; achievement of cost savings in terms of overheads reduction, reduction in employee training needs, there will be increased performance and service level due to service provider specialization, there is reduction of capital expenditure e. . I. T infrastructural systems and there will be shorter times to the market for a customers services mainly due to a more flexible and responsive process for the outsourced services (Bharat Vagadia, 2007, p. 16).
Other notable advantages may include, the need of gaining outside expertise, this happens when the client firm makes an effort in helping the outsourcing service provider grow its abilities not with standing the benefits of helping the client firm improve on its services (Shniederjans et al, 2005, p. 26). According to Berkling et al (2008,p. 4) there are quite a number of challenges which are inherent with transitioning key IT operations in remote locations in which organizational challenges are present at the strategic, tactical and operational levels. In a certain study of outsourcing contracts performed between 2003-2005, it was concluded that cost reduction in outsourcing contracts is approximately 15% on average as opposed to a common belief of 60%, this means outsourcing as a business model is unlikely to succeed if it is driven by cost savings motives only, since the cost advantages derived from the wage gap difference from developing nations has been waning.
Furthermore, with organizations personnel and budget reductions, it becomes increasingly tricky to sustain the levels of previously projected cost savings and the viability of the outsourced services become questionable. Software development in Home Health Services is an early candidate for outsourcing. This is because the organizations core functions pertains to health services which relates to drug prescriptions, health check up, consultancy services among others.
Going by the fact that businesses want to be visible from different parts of the world, they want to server their customers anywhere anytime, they are forced to implement a web application in order to explore opportunities such as automated drug ordering, customer care and online appointment systems which requires a computer programmer to be delivered.
Considering the costs of hiring a full time programmer yet the job is likely to be performed once while the programmer remains full time on the organizations payroll, then, it becomes viable to outsource the entire process to a third party provider who will be not only cheaper in the long run, but will be compensated per work performed hence saving for Home Health Services some significant amounts which can be channeled to other critical areas.
Porters (2002) value chain model clearly supports the evolution of IT/IS to internet based architectures. Internet avails an infrastructure that enables swift business information access and delivery including bi-directional communication at more cost effective cost which enhances an organizations competitive advantage. Internet technology enables the linking of organizational activities by availing real time data within the organization itself and its outside suppliers, channels and customers.
This is so because evolution towards the current internet based architectures can be thought in terms of five overlapping stages which evolved out of the constraints that were presented by the previous information system generation. To begin with, the earliest systems automated discrete functions such as order entry and accounting, the second stage comprised of automating and enhancing of individual activities such as the human resource management & sales force, the third stage which is also being accelerated by internet growth comprises of cross activity integration e. . linking sales activities with order processing or supply chain management & enterprise resource planning systems. There is the fourth stage which integrates the value chain together with the entire value system encompassing the tiers of suppliers, channels and customers. Finally in fifth stage, IT/IS are used to connect various activities and players within the value system in order to optimize their workings in real time which is likely to influence the production decisions.
For instance, it is possible to have an entire web based supply chain management system whereby suppliers reduce their transactional cost whenever they make their orders online because products information can be provided on organizations proprietary sites with the benefits to buyers which includes lower transactional costs, enhanced access to price and products information, the ability to pool volume while the benefits to suppliers are lower selling costs, lower transaction costs, access to huge markets and avoidance of powerful channels.